US Stock Market
The composite valuation indicator (red below) uses the secondary axis on the right.
US Bull-Bear
We revised the bull-bear market leading indicator at the end of April 2026 to improve responsiveness by reducing it to a composite of five key indicators. Currently, two of the five indicators signal risk-off, indicating a medium risk of a US bear market.
US Treasury Yield Curve
The 10-year/3-month Treasury yield spread has been positive for more than 120 days, and the S&P 500 is above its 12-month weighted moving average, confirming the risk-on signal.
US Fed Funds Rate
The September FOMC meeting raised the fed funds rate target range to 3.75%-4.00%. The next meeting on October 27-28, is expected to leave rates unchanged. The signal is risk-on unless there has been a rate cut in the preceding 75 days.
US Cyclical Employment
Cyclical employment increased to 27.625 million in September from 27.597 million in August. A 300,000 decline from the September 2024 peak of 27.671 million would signal risk-off.
US Heavy Truck Sales
US heavy truck sales slowed to 33,900 units in September from 36,500 units in August. The 12-month average eased to 32,900 from 33,000. However, it would need to reverse by 10% for the risk-off signal to reverse to risk-on.
Heavy truck sales reflect the transportation industry's confidence in the economic outlook. A fall of more than 10% below the preceding peak signals risk-off, while a 10% rise above a trough indicates risk-on.
US Stock Pricing
US stock pricing remains at extreme levels. We changed the composition of the Forward PE and Price-to-Sales indicators at the end of April 2026, so earlier highs are not directly comparable.
We use z-scores to measure each indicator's current position relative to its historical data, with results expressed in standard deviations from the mean. We then average the five readings and convert that to a percentile. The higher the stock market price measure is relative to the historical mean, the greater the risk of a sharp drawdown.
US Value Buffett
Warren Buffett's favorite long-term measure of stock market valuation provides a stable valuation ratio largely unaffected by fluctuating profit margins.
The stock market capitalization-to-GDP ratio is more than double its long-term average of 1.2. Values above 2.0 indicate that stock prices are dangerously high.
US Value CAPE
Robert Shiller's CAPE smooths out business-cycle effects by comparing the S&P 500 index to a 10-year average of inflation-adjusted earnings.
The recent advance on the CAPE ratio is the second-highest in history, behind only the 1999 Dotcom bubble of 44.2. Values are far above their long-term average of 22.4.
US Value PEmax
The S&P 500 Price-to-Earnings (PE) ratio, based on the highest trailing earnings, remains high when compared with the long-term average of 17.3.
US Value Dow FPE
The Forward PE for stocks in the Dow Jones Industrial Average uses a 20% trimmed mean to mitigate the impact of outliers.
US Value Dow Price-to-Sales
We use a 20% trimmed mean of the Price-to-Sales ratio across the 30 stocks in the Dow to remove the most extreme readings that would otherwise distort the ratio.
A change in the Dow Jones index composition on June 29, 2026 may have contributed to the recent jump, when Alphabet Inc. (GOOGL) replaced Verizon (VZ) in the index.
Conclusion
The US Bull-Bear indicator, led by the transportation sector, suggests the US economy is slowing but not yet in a bear market, while the composite Stock Pricing indicator continues to warn that stocks are extremely overvalued.
ASX Stock Market
ASX Bull-Bear
The ASX Bull-Bear Leading Index signals a mild bear market.
Australian leading indicators account for 40% of the ASX Leading Index, China for 20%, and the US Leading Index for the remaining 40%.
ASX 200 Financials
The ASX 200 Financials Index (XFJ) rallied above its 50-week weighted moving average, signaling another test of resistance at 10,000. A breach of primary support at 9,000 would signal risk-off.
ASX 200 Real Returns
The ASX 200 is above its 50-week moving average relative to Gold, but the long-term downtrend continues. The signal remains risk-off until a rise above -0.50 completes a higher trough.
Performance of the ASX 200 Index relative to Gold (in Australian Dollars) reflects the real return on Australian Stocks.
ASX China OECD
The OECD Composite Leading Indicator for China eased to 97.41 in September. Values below 99.0 or a fall of more than 3 points from the preceding peak, as in 2008, signal risk-off.
China is Australia's largest export market, and the Chinese economy's performance directly affects the ASX.
ASX Stock Pricing
ASX stock pricing bounced to 76.9% from 71.70% two weeks ago. Prices are still in a downtrend, but the decline is not a buy signal.
We use z-scores to measure each indicator's current position relative to its historical data, with results expressed in standard deviations from the mean. We then average the five readings and convert that average to a percentile. The higher that stock market prices are relative to their historical mean, the greater the risk of a sharp drawdown.
ASX Value Buffett
Warren Buffett's favorite long-term valuation indicator compares stock market capitalization to GDP, providing a stable ratio with a long-term mean of 1.03.
ASX Value Price-to-Sales
The Price-to-Sales ratio for stocks in the ASX 20 uses a 20% trimmed mean to remove the highest and lowest readings, which tend to distort the average.
ASX Value FPE
The Forward Price-Earnings ratio for stocks in the ASX 20 uses a 20% trimmed mean to eliminate the highest and lowest readings. This avoids distortions of the average by outliers.
ASX Value PE
The All Ordinaries price-to-earnings (PE) ratio above 20 indicates high pricing. We need to ignore the 2020 distortion caused by low earnings.
The PE ratio is based on the latest trailing earnings (red below), but produces extreme readings if earnings per share (EPS) rises or falls sharply, as in 2008 or 2020, which is why we also calculate a PE based on the highest trailing earnings.
ASX Value PEmax
We use a Price-Earnings ratio based on the highest trailing earnings for the All Ordinaries Index to eliminate extreme readings when earnings fall sharply. Values above 16.0 indicate stocks are overpriced, while values below 12 indicate they are cheap.
The ASX has volatile earnings due to the large resources sector, which necessitates the use of both price-earnings ratios — based on trailing earnings and highest trailing earnings — to provide a balanced view.
ASX Value DY
The All Ordinaries dividend yield is below its long-term mean of 4.1%, suggesting values are high. A fall below the 3.0% threshold would signal that stocks are extremely overpriced.
Note: Lower yields indicate higher values, so we reverse the z-score for the ASX dividend yield.
Conclusion
The ASX Bull-Bear indicator signals the early stages of a bear market, while the falling composite Stock Pricing indicator indicates a drawdown. China’s NBS Manufacturing PMI crossed above 50 and no longer signals contraction, but the ASX 200 Financials Index is still testing primary support at 9000.
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Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients.
Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter.
Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit.
Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
